Stolt-Nielsen Limited

Good afternoon. Good morning, and welcome to the Video Conference Presentation of the Fourth Quarter Results of Stolt-Nielsen Limited, which we are streaming live from our lockdown locations.

My name is Niels Stolt-Nielsen. I'm the CEO of Stolt-Nielsen, and I'm joined by our CFO, Jens Grüner-Hegge.

And today also, we are joined by Jordi Trias, who's the President of Stolt Sea Farm. Thank you all for taking the time to join us for our quarterly earnings update.

I’d like to remind you that you can post questions at any time during the presentation by typing them into the Q&A window, which should appear on the right side of your screen. And this video conference will be recorded.

All questions will be answered at the end of this presentation. Then, let's move on to the next slide, please.

Thank you very much, Niels. Good afternoon.

Good morning. I have the pleasure to guide you through this specific section on Sea Farm, let’s start the fourth quarter results.

And the operating revenue for the quarter was $19.7 million, down from $22.4 million previous quarter. EBITDA was a $3.1 million, down from $5.2 million.

And operating profit was $1.2 million, down from $3.9 million on the previous quarter. As to volume sold, we sold in previous quarter 1,900 metric tonnes turbot and sole together, down from 2,425 metric tonnes on the previous quarter.

Most of those are -- most of the decreases on -- in turbot. And it's caused by first the seasonality effect, because we have larger sales in the summer period and in fourth quarter usually, but also the second wave of COVID.

That's been hitting our markets quite strongly. Nonetheless, we were able to increase prices in from Q3 to Q4 in turbot.

And we are expecting the Q1, 2021 we will see an increase in sales and volume sold in turbot during the business campaign is a big one for sales, and that usually impacts first quarter positively. You see also that we have higher A&G expenses in the period, because we reactivated some part of the investments.

We also -- well it came to an end, the salary cuts that we did during Q3, and this is partially offset by a lower depreciation due to lower volume sold. So let me now share with you what we do at Stolt Sea Farm, what's our core business, and our growth ambitions going further.

So next slide please. Let's start with some general information, we at Sea Farm are the global pioneers and innovators in land-based agriculture of flatfish.

We've been farming in land-based for more than 30 years now, and with recirculation technology for more than 20 years today. It is our company's purpose to ensure that future generations continue to enjoy wonderful seafood.

And turbot and sole are wonderful seafood indeed, you're not well deserve for fish, the 100% land-based farm and they are continuously -- consistently selling in the market at higher average prices and most of the farms fishes today. Next slide please.

Stolt Sea Farm is a company that has been creating value for decades and is very well-positioned to continue doing so. It is a proven business from both the biological side and the financial side.

So we have a long track record of delivering sustainable results. We've created a market leadership upon the two species turbot and sole, which again are sold at a higher average prices than most species in the market.

And this leadership we have obtained through the technological capabilities that we have developed through those 30 plus years in operating land-based farms. Mostly and significantly through the exceptional broodstock, but also thanks to the proprietary flow-through and recirculation farms that we own and operate.

Also, of course, thanks to the leading competence of our team and the fact that we have a shareholder that has a long-term orientation. And we see a very significant growth potential for the business going forward.

You will see it a bit later, based upon the recirculation technology and the capacity to expand sole farming with it, but also very strong seafood demand and megatrends, and, obviously, the Stolt way of farming responsibly and sustainably. So we’ll see that now.

Next, please. This is an overview, what we have today.

So you get to know us a bit better. We own and operate 14 farms and two hatcheries, all of them land-based in five different countries.

As you see on the right chart, most of the turbot production is happening today in Spain and Portugal, and we have another farm in Norway. And in the case of sole, the production is already more widespread geographically.

And that's the idea to continue doing that. Thanks to the recirculation technology we have developed.

Speaking about geographical diversity, you see that we sell to more than 30 countries today, with big part of those sales happening in, what we call, South and European markets, which are more natural, let's say, markets for turbot and that’s Spain and Italy, mostly. But it is the new market.

We call new markets are Northern European markets, North America, Scandinavian markets, those are the ones growing faster. And as you'll see, we have around 408 employees today with us.

So next slide please. That was an overview of where we are, and this is an overview of our leadership position in the markets.

So, on the left, you can see how both sole and turbot have been consistently selling at higher average prices and most of the farmed species in the market, and on a continuous growing trend in recent years and a very positive one. Of course, 2020 hit our average prices down, because a lot of our sales are happening in, what we call, a foodservice or HoReCa channels or restaurants and hotels.

We are seeing already a recovering trend. And -- but of course, yes, there was this decrease in 2020.

And on the right, you can see that besides selling on high end part of the seafood industry, we have a strong leadership position on the two species we have. So in the case of turbot, in 2019, we finished the year with 71 market share.

That's including our own production and the trading operation that we have. In the case of sole, we finished 2019 with a share of 41%.

Today with the two new recirculation farms that we just started harvesting from, we are going to be seen by the end of 2021 higher average -- sorry, market share of probably 60%. Next slide, please.

And I've been talking about recirculation. I would like to introduce you to the module, that's how we call it.

It's our new recirculation farm for sole. It's a proprietary designed.

It's the fruit of 20 years of expertise in recirculation and in the sole species. We have designed internally a very -- we call it, optimized module, because it occupies a small piece of land.

It's very robust in terms of biological safety. We have implemented specific technology for that of our own design with optimized energy consumption.

Again, it occupies a small piece of land. So, one of the beauties of this module is that you can basically replicate it and install it almost anywhere in the world, very close to consumer market for example, but also in areas where difficulties of land availability or water availability as well.

This particular -- one you see in the picture is the one that we have in Spain. We started harvesting already in January this year, it's already harvesting regularly.

We have a second one operating is in -- the one in Spain is installed in an industrial area by the way. The second one in Portugal, which is installed or built in an environmentally protected area, already introduced in December and we'll be harvesting probably by the end of the year.

Now, another good thing of this model is the economics of it. I'm sharing here with you; the CapEx for investment for one of these models is roughly €10 million.

And the return we're expecting on EBITDA is €2.5 million per year more or less. We are expecting probably to be exceeding this return.

So it is not only a very good solution to expand sole farming globally, but it's also profitable one. Next please.

So, with that -- with the module I have shown you, which is reality is already happening, I would like to share with you what's our growth aspirations, our growth plan and you see that from 2019, what we finished with roughly 9,000 tonnes sole. By next year 2022, we will be doubling our sales or production of sole, thanks to these two recirculation modules that I showed you.

And it is our intention that by 2025, that's what we call the near-term growth aspiration will be again doubling the production for sole and within our existing facilities already. So, we've implementation of more of these modules.

And we will be adding some 20% to 25% more own production turbot to reach roughly 10,000 tonnes produced by Stolt Sea Farm. The long-term aspiration is to reach beyond 23,000 tonnes and you see that most of the growth is coming from sole because that's the biggest potential that we see in terms of growth in the coming years.

So, what are the key drivers for this growth? For Turbot, we are going to be rolling out our program and our flow through technology.

And in the case of sole, as I mentioned, we will be rolling out this recirculation technology that we've been investing on, and after years of R&D and investing probably €75 million in development of the sole species including CapEx, we are ready to expand and accelerate growth with it. On the two species, we will be building a wide network of sites that's what we call internally of the multi-site strategy, which allows us to review biological risks, but also to be spread geographically and be closer to markets and the near-term growth is on pre-identified or already owned land.

So, with this, I hope, I've been able to share with you that we have been throughout the deck and it’s a very robust and profitable business with turbot that has the potential to double its size. And in the case of sole, and more significant growth potential ahead of us that we will be capturing through the recirculation technology.

So, thank you very much. And now back to you, Nielsen.

Thank you. Just before I start talking about Stolt-Nielsen Gas, I would just like to comment upon -- we announced in January that we are exploring the opportunities of doing an IPO of Stolt Sea Farm.

The purpose of the IPO is to make the value of Stolt Sea Farm more transparent to the market under the current structure with tankers terminals and tank containers, they kind of fit together same customer, same products, same markets in which we operate, but the fish this is -- we’ve always been criticized for having it under this structure. I have -- we have earlier stated that -- that we are not interested in just separating out, just to get a higher share price, not at this time, because, we've spent 20 years in developing this whole.

The turbot has been profitable all along has been financing developed Stolt. So now that we have cracked the code, and we're just about to launch with the technology -- proven technology that we have developed, just phenomenal, fantastic growth, that we see the opportunities that we see both of turbot and for Stolt.

But since the market, the interest in the market for this type of operation, and if I compare the, other companies that are operating the land base recirculation, I felt that it was time for us, even though, we haven't gotten the full production and the full EBITDA out of -- out of the Stolt investment yet, but we as -- surely, surely we have the plan to do so. We have decided then to explore the opportunities to do an IPO of Stolt Sea Farm.

We've had early look meetings, there's a lot of interest, but the final decision has been made. But you know, that's something that we will be considering in the future.

Then if we move to the LNG next slide, please. So this is Avenir the first ship was now delivered to Petronas and is on time trial for three years, generating nice positive cash to the company.

The second ship will be delivered towards the end of February, early March, and is also on the three year BB charter to Hydro Energy. The loan facility of $53 million in place for the first two ships, drawdown of each tranche on delivery.

As we announced earlier, we have four additional ships to be delivered, two 7,500 and two, 20,000 tonnes. There are a lot of interest for these ships, the last remaining ships will be delivered towards the middle and second half of this year.

We at current -- as we stand we don't have any firm commitments, but a lot of a lot of demand for those positions. The Sardinia terminal that we have built, we expect to commissioning in March of 2021 with commercial operation starting in May of 2021.

Next slide please. That's over to you, Jens.

Thank you.

Thank you very much, Niels, and very good afternoon to those in Europe, and good morning to those of you who are in the United States. As normal, I will review the financials and also go through a few key balance sheet items.

But also want to remind you that we have today posted on our website www.stolt-nielsen.com. under investors and reports and presentations.

We have posted the earnings release from this morning. We have posted the interim financials, as well as this presentation.

I also want to remind you that our fiscal year starts December 1st every year, and ends November 30th. And also something to be aware of when you compare the 2020 numbers with 2019 is that, the 2020 numbers are based on IFRS 16, while the 2019 volumes are still follow the old methodology.

If you go to next -- well, that's good, thank you. Looking at the operating profit before one-offs for the fourth quarter was $58.2 million and that was done from a relatively strong third quarter we were at $72.6 million.

And this reduction, we've gone through, or Niels has gone through already to a great extent. It reflects the high operating costs and lower utilization at Stolthaven Terminals.

Higher move related expenses at STC, not fully compensated for in the revenue that -- due to the lag effect. And a slight reduction in turbo sales as is normal in the fourth quarter.

So on a positive note, tankers has continued to experience rising freight rates, despite somewhat lower volumes, and with the regional chase in particular showing us a good improvement. The main one-offs this quarter relates to the net $8.8 million in payments, that's Stolthaven Terminals, that's the $12.4 million Stolthaven Terminals one- offs, less than 3.6 million impairment reversal of a JV loan.

So after these, this impairment, we feel we have seen both the Stolthaven Terminals balance sheet is in quite well. And that we are in a good position going forward.

Operating profits before one-offs for the full year of 2020 was $198 million that was slightly up from $185 million in 2019. Going down on the quarter, net interest expense for the quarter was down, reflecting the earlier partial repayment of the bond SNI07, which matures in March of this year.

And also related debt issuance costs write-offs. FX costs, was insignificant this quarter, but you will note that the income tax is down to 900,000.

And that's a decrease of about $3.7 million. And that mainly reflects the decrease that we've seen the performance of terminals and Tank Containers and the Sea Farm divisions.

And consequently, we ended up with a net profit from continuous operations at $15.6 million with an EBITDA for the quarter of $128 million, which puts the full year EBITDA as Niels mentioned that $490 million. That is up from 441 in the prior quarter, but there is an IFRS 16 impact to consider in that adjustment and also for the full year our net profit ended at $25.4 million.

Next slide, please. Covenant.

This is a view of the balance sheet from a covenant perspective. And you will see that our -- we have three main financial covenants in our loan agreements.

It's the debt to tangible net worth which is shown in the top left quadrant. It is the EBITDA to interest expense, which is shown in the top right quadrant.

And then we also have a covenant that requires a minimum tangible net worth of $600 billion, which were well above. If you look at the top left, you will see that we ended the debts -- with a debt to tangible net worth of $1.53 to $1 and that is driven by the debts of $2.5 billion, down $37 million from the prior quarter and an improvement in the tangible net worth, reflecting underlying profitability.

If you look at top right, the EBITDA to interest expense continues to improve very much driven by the improvement in EBITDA. And we ended the fourth quarter at 3.55, up from 3.41.

Not strictly a covenant, but important to track nonetheless is the net debt to EBIT on the bottom left quadrant. And you will see here there's been a steady improvement since it peaked at the first quarter of 2020 and ended the quarter at 4.68.

Our goal here is still to get this to below 4:1. But you can see what is driving the improvement on the bottom right quadrant where you can see the EBITDA development where the recent three quarters improvement in EBITDA have helped strengthen our performance under these covenants.

Next slide please. Capital expenditures for 2020 were $137 million of which $20 million was during the fourth quarter of 2020.

This was primarily reflecting about $12.6 million spent on terminal CapEx with the balance split between Tankers, Tanker Containers and Stolt Sea Farm. You should also keep in mind as it says in the highlight box to the right that Stolt Tankers CapEx excludes drydocking, which is capitalized separately.

And in 2020, we spent $22 million on drydocking. Subsequent to year and we started taking delivery of the CTG ships and you will see an increase in Tankers CapEx and that reflects the delivery of those five ships in the first quarter of 2021.

The first ship entered the service on January 4, and subsequent ships will be delivered sort of, by the middle -- mid of March is expectation. The good thing about these ships is, yes, it does increase our capital expenditures, and we will take on debt to finance them.

And we are pretty close to completing that financing, but also that three ships will be cash positive from day one when we take them -- take the delivery. The 2021 terminal CapEx that reflects capital spending that was postponed from 2022 into the future.

This was part of as you might recall our COVID pandemic response when we back in March pushed forward expenditures to serve cash as much as we can short up on liquidity. Also want to note is on Stolt-Nielsen Gas we have $21 million in 2021.

And that reflects our further commitment for equity injection into Avenir LNG. So with that 2021 looks like we will be spending about $211 million.

And that's up from $137 million in 2020. Can we go to the next slide, please?

Cash flow and liquidity, Niels has already touched on that. And I would like to emphasize it.

We generated -- in to fourth quarter, we generated $121 million from operating activities in cash flow. And if you take away the interest paid of $41 million and typically the fourth quarter is a relatively intense quarter when it comes to interest payments, and you see interest payments were up by about $20 million from the prior quarter.

You end up with net cash produced by operating activities after interest of about $80 million. In comparison, we used about $20 million in investing activities.

And that left us with $59 million after both capital expenditures and interest to pay down debts and to also pay dividends. And this year strong cash flow generating capabilities also reflected in the full year 2020 and also even in 2019, which were two non-strong years if by any means.

Yes, we have shown that we have a very strong capacity to generate cash flow after capital expenditures, so that we can continue with our focus on reducing debt and putting the company in a stronger position going forward. Next slide please.

This is our debt maturity profile. We have talked about SNI05, which is maturing in March of this year, and we have raised the cash already to pay that off in full on maturity date.

And that leaves us with only regular principal payments for the balance of 2021. Our next significant repayment is the bond that matures in 2022, $175 million.

That doesn't mature until September of 2022, so there's ample time to deal with that. Our intention is to maintain a presence in the bond market, so we'll keep an eye on how that develops, but there is no pressing factors on maturities.

The $138 million relates to say lease with tanker security and our intention is to continue to roll that forward once that matures. What we have done so far since the end of the quarter is that we have closed on a $65 million secured loan secured by Moerdijk and Dagenham Terminal and on $100 million revolving credit facility.

Our expectation is that we'll draw on a $65 million facility probably within the next few weeks, and then the revolving credit facility will keep in reserve. Also, we are close to completing the financing as mentioned on the five CTG ships, two of which will join our joint venture with NYK called NST, NYK Stolt Tankers, and three that we will take onto our balance sheet.

From a cash perspective, these will be fully financed 100% at quite attractive terms. So with that, I would like to hand it back to you, Niels.

Thank you, Jens. The key messages takeaway, we want to become more transparent in what we do when it comes to ESG.

As I said, you will see this in our annual report. And you will see also on our website in a consistent manner.

Stolt Sea Farm, we are considering doing an IPO to visualize the underlying and making the underlying value in Stolt-Nielsen more transparent. Stolt Tankers -- we also have an ambition of doing an IPO of Stolt Tankers and preparations are ongoing, but we need to wait for the right market conditions.

As the Jens shown you the balance sheet is strengthening, debt covenants continue to improve. We have a growing positive free cash flow and we are optimistic for the medium to long-term.

We can all try to speculate when this container come back, so it’s going to be past, but I'm quite certain it will be and we are very well-positioned for -- in each of our businesses for a global economic recovery.

And the first one is from Danske Bank, Anders. Can you elaborate how much of your -- I'm sorry, somebody changed it here.

Can you elaborate how much of your contract portfolio approximately percentage that was renewed in the -- in the fourth quarter is Stolt Tankers?

The fourth quarter and the first quarter are the most specific quarters around 35% and each of those two quarters are renewed. So whoever did it don't change or publish it after I've read it.

Okay.

Petter Haugen from Kepler asks how much of your COA volume that did expire was renewed this quarter? Did you win a new contract?

What is the average duration of the new contract?

So I'm not going to state specifically how many contracts we let go and how many we won, but we increased as you saw from the contract coverage, we increased our contract coverage slightly. Again, the -- we did also win new contracts, so we were net positive for the quarter.

What is the average duration of that you have?

So this is a good question. Because we expect, we are seeing a rising market, we -- the contract that we did renew were all one year contracts.

And if there -- if it is a multiple year contract, they are -- you know the caps have been increased, you know not 5% anymore, but more than -- more like 20% increases, but most of the contract because we do expect the strength in market were renewed for one year.

Anders, Danske Bank, on the Tank Containers side, are you able to fully recover pass through the increased shipment expenses both land and sea?

Yes we are. But it lags.

Then the -- could management comment, on what aims, what it aims to use the proceeds? Can you stop it?

Ellie, I'll take care of it. You don't have to publish them.

I'll take care of it. Sorry about that.

Could management comment on what it aims to use the proceeds on from a potential IPO at Stolt Sea Farm?

Jordi, if you can answer that.

Yes. So not with a lot of detail but the main intention, obviously is to take the necessary steps to roll out the -- what we call the near-term growth plan.

And you've seen that some of the things happening in the near-term happen within our already owned or leased land. So that's going to be a faster rollout.

But we'll take necessary steps to prepare for the rest of the near-term growth in terms of acquiring land, for example, but not much more in detail. Thank you.

Thank you. Then the next one, Jens Hillers from H&P Capital Advisors.

On Avenir, can you please provide some color on the charter rates, you expect to be -- for the delivered vessels?

I do not want to comment on that. But there is -- I don't want to give specific numbers, but there's quite a bit of demand for these positions.

So they're well timed and well positioned. So I do expect attractive returns on those ships.

And then the same question -- or from the same person. Can you please elaborate on the path to a potential IPO for the Avenir business?

Yes. I can say that Avenir, our ambition is not to be a shipping company, but to develop to -- is to become a supplier of LNG -- of small scale LNG to remote customers or standard customers as we call it.

And we are in the process of commissioning the first terminal, we will then source it, ship it, store and distribute it and also sell the gas. And that, as you probably understand takes time.

So I feel like we need to come -- have a little more contracted business or have a slightly bigger company before we consider an IPO. But in the long run, it is our ambitions to do an IPO of Stolt Sea Farm, but timing wise it's too early to say.

Then Jordi there’s another one for Sea Farm. Can you provide potential annual EBITDA when sole and turbot production capacity is full, fully operational at mid-cycle prices.

That's something you would answer, Jordi.

Well, again, not with detail on the figures, obviously, we cannot provide at this stage. But what I can mention is that, the success for EBITDA growth, again, to come from, well, first, volume growth from the growth plan, then the positive evolution we're seeing in average prices, and then going forward with that, and sustaining those average prices high.

And finally, yes, with the roll out of the sole farming in recirculation, relevant savings and production costs and therefore much better results. But that's as far as we can go at this moment.

Thank you very much.

Thank you. I would also say that in the presentation, you can see what the EBITDA from each of the modules are.

And I'd say, it's a conservative estimate, albeit, it's based on the growth that we're seeing today on this module. So, as you can see from the growth plan that he presented, that you can also calculate the potential EBITDA, both for the turbot and the sole.

From the information that we had provided, you can make assumptions.

Then it is Lukas Daul at ABG. You made a bit of a U-turn on dividend, declaring $0.25 in late 2020.

Given your market outlook, what is your thought on this subject for 2021?

Well, it is our job to provide a return to the shareholders. So I feel -- as you know, we cut back -- we cancelled after announcing final dividend for 2019, we held back or we cancelled it, because we want to preserve cash, because of the uncertainty or -- we stated that we want to plan for the worst, but hope for the best.

And we did it. We took a lot of action, as you know, and we did a lot of cost savings.

We raised enough liquidity. And the year turned out as you can see profitable, so we felt that it was the right thing to declare 25% -- $0.25 interest for -- an interim dividend for 2020.

Going forward, if we continue to see a recovery in the market, needless to say, we will, we will pay go back to normal dividend. Historically, normal dividend has been around $1 per year.

But we will manage our balance sheet and conservative by making certain that we have a strong balance sheet and a strong liquidity position. For flatfish, you right about a weakening spot market, yet you're seeing a rate renewals was up.

Is it a result of a low starting point or the COA market being somewhat decoupled from the spot market?

I would say, yes. Most of our large customer they do their business with COA they can't really operate in the spot market.

So there is kind of a slight decoupling between the spot market and the COA a market. And I think our customers that are dependent upon having a steady supply of -- steady reliable service, they want to -- they see how the market conditions are, they see the supply situation.

So they understand that -- most likely they understand that the market is on it's way to strengthen. And therefore, we are able -- even though the stock market is has been low in the third -- sorry, in the fourth quarter we were able to get a higher COA rates.

I think that will continue going forward. Now, also the COA rates have been low, because we have had a horrible shipping market for the last, I daresay, last 20 years.

So it's a long way, until we get to the right level. It's not right to say, it's been bad for 20 years, but overall the return in shipping over the last 15, 20 years has not been sustainable.

So it's a long recovery. But with the current supply situation, I think that -- we will get there.

So I think, we will continue to see an increase in COA rates. And that's also why we only willing to fix for one year.

For Containers, high activities negatively affecting the margin, do you consider it to prioritize profitability versus growth? Or is that difficult?

Well, I think that the tank container market has changed and is changing. It was a young industry where I would say that relatively healthy margins, but it's become more and more competitors, more and more operators.

So it's become more competitive. So we have to -- the margins will come down, but we need to be and this is what we see, the demand for the transportation of products in Tank Containers continues to grow.

It still is cannibalizing from drums or taking away from drums. It's cannibalizing from tankers.

It's become a very efficient way of shipping products and very competitive way of shipping products. So, the demand for the service is growing, but under more competition.

So the trick for game is to have the right platform that is to be able to calculate your pricing correctly, so that you don't you minimize entry positioning, and we have that platform. So I think it's going to be a low margin business, but with more shipments.

So hopefully, overall high profitability. What amount of debt are you planning to raise against the five new vessels?

I think, Jens, address that on the Japanese ships, we were at -- we were able to obtain 100% financing or close to 100% financing. And on the -- sorry on the two Japanese joint venture ships, so 100% financing on the three ships it was what 80% financing.

Jens?

95%.

95%, yes, sorry. What is the reason for buying more Golar LNG ships?

Just because we believe in the company and at an attractive price and subsequently the share price has appreciated from what the issue was priced at. That was Lukas Daul and then we go to the last one we have.

Jens, if you can take that one. Can you indicate level driving costs for 2021 for Tankers?

Without going into specifics, it’s -- if you think about spending around $20 million on drydockings any given year that sort of good measurement to use when you do your analysis.

That completes all the questions. Thank you very much for participating over teams.

It's a new world and we operate unfortunately, we have to continue to do these teams presentation. But hopefully in the not too distant future, we can go back to regular face to face meetings and also these presentations that we usually do also.

Thank you very much for participating and that completes our fourth quarter earnings release. Thank you.